Canada's international investment position, second quarter 2014
Canada's net international investment position fell by $94.7 billion in the second quarter, which pushed Canada from a net foreign asset position to a net foreign debt position of $57.3 billion. The decline reflected a higher Canadian dollar as well as relatively strong Canadian equity markets, which together increased the value of Canada's international liabilities by more than the value of its international assets. This change was also supported by an ongoing balance of international payments current account deficit, with the corresponding financial transactions resulting in greater foreign investment in Canada than Canadian investment abroad in the quarter.
International assets constrained by stronger Canadian dollar
Canada's international assets increased by $19.3 billion to $3,095.5 billion in the second quarter. Gains from higher foreign equity prices and Canadian investment abroad of $30.3 billion contributed to the increase. However, this was moderated by the downward revaluation effect of a stronger Canadian dollar on foreign currency-denominated assets. Over the quarter, the Canadian dollar appreciated by 3.6% against the US dollar, 4.2% against the euro, 0.9% against the British pound and 1.7% against the Japanese yen.
International liabilities reflect capital gains and foreign investment
Canada's international liabilities advanced $114.0 billion to $3,152.8 billion in the second quarter. This was led by ongoing gains in Canadian equity prices and $45.7 billion of additional foreign investment in Canada.
Net foreign liability on portfolio investment increases
Foreign investors' holdings of Canadian securities advanced $46.9 billion to $1,448.0 billion in the second quarter. This was led by foreign acquisitions of corporate securities, both debt and equity instruments, as well as the upward revaluation of non-resident holdings of Canadian shares. Domestic stock prices were up by 5.7%, a fourth consecutive quarterly gain.
On the other side of the ledger, Canadian holdings of foreign securities were up by $8.8 billion to $1,201.6 billion. Acquisitions of foreign securities slowed significantly in the quarter. At the same time, the effect of higher foreign equity markets was moderated by the impact of a stronger Canadian dollar, which reduced the value of these foreign currency denominated assets.
Net foreign asset position on direct investment declines
The net foreign asset position on direct investment fell by $73.5 billion to $99.3 billion in the second quarter, the first such decrease since the third quarter of 2012. This reflected larger gains in direct investment liabilities than in direct investment assets. The value of foreign direct investment in Canada increased by $82.5 billion to $1,199.2 billion. This growth was largely related to the strength of equity prices.
At the same time, the value of Canadian direct investment abroad was more modest, up by $9.0 billion to $1,298.5 billion. This change mainly reflected the appreciation of foreign equity prices, which was largely offset by the downward revaluation effect of a stronger Canadian dollar.
Note to readers
The main measure of the International Investment Position Account now incorporates market valuation for tradeable securities and foreign direct investment equity. This adds a further dimension to the analysis of Canada's net international investment position and more accurately reflects changes in that position. The international investment position at book value is still available, as the annual foreign direct investment release includes geographical and industry details. For more information, see Valuation of assets and liabilities.
The value of assets and liabilities denominated in foreign currency is converted to Canadian dollars at the end of each period for which a balance sheet is calculated. Most of Canada's foreign assets are denominated in foreign currencies while less than half of Canada's international liabilities are in foreign currencies. When the Canadian dollar is appreciating in value, the restatement of the value of these assets and liabilities in Canadian dollars lowers the recorded value. The opposite is true when the Canadian dollar is depreciating.
Change to annual revision practices
The Canadian System of macroeconomic accounts is implementing a new revision policy. Annual revisions for Canada's international investment position, which affect the three most recent calendar years, will take place in December rather than June, as was previously the practice. For more information, see Latest Developments in the Canadian Economic Accounts (Catalogue number13-605-X).
The international investment position presents the value and composition of Canada's assets and liabilities to the rest of the world.
Canada's net international investment position is the difference between Canada's assets and liabilities to the rest of the world.
The excess of international liabilities over assets can be referred to as Canada's net foreign debt.
The excess of international assets over liabilities can be referred to as Canada's net foreign assets.
For more information, contact us (toll-free 1-800-263-1136; 514-283-8300; email@example.com).
To enquire about the concepts, methods or data quality of this release, contact Marie-Josée Lamontagne (613-951-5179; firstname.lastname@example.org), International Accounts and Trade Division.
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